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Do Structural Breaks Affect Portfolio Designs and Hedging Strategies? International Evidence from Stock-Commodity Markets Linkages

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  • Arfaoui Mongi

    (Department of Accounting and Finance, Faculty of Economics and Management Sciences of Mahdia, University of Monastir, Tunisia)

  • Haj Ali Dhouha

    (Department of Accounting and Finance, Faculty of Economics and Management Sciences of Mahdia, University of Monastir, Tunisia)

Abstract

The present paper studies stock-commodity markets linkage using vector autoregression generalized autoregressive conditional heteroskedasticity (VAR-GARCH) approach for the period spanning from January 3, 2000 to March 12, 2014. The analysis has been performed through three competing specifications; the VAR-constant conditional correlation-GARCH, the VAR-Baba, Engle, Kroner, Kraft-GARCH, and the VAR-dynamic conditional correlation-GARCH, ignoring and accounting for structural breaks in volatility to look at the impact of the breaking events on volatility spillovers and its persistence as well as the implications on portfolio management. We found significant interdependency in first and second conditional moments. The structural break dates help forecast current conditional volatility and define its persistence. Their effects have been found slight on optimal weights, miscellaneous on hedge ratios but important on hedging effectiveness. We consider that our findings open up new insights for managerial and governmental policy purposes.

Suggested Citation

  • Arfaoui Mongi & Haj Ali Dhouha, 2016. "Do Structural Breaks Affect Portfolio Designs and Hedging Strategies? International Evidence from Stock-Commodity Markets Linkages," International Journal of Economics and Financial Issues, Econjournals, vol. 6(1), pages 252-270.
    • Handle: RePEc:eco:journ1:2016-01-34
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    More about this item

    Keywords

    Volatility Spillovers; Structural Breaks; Portfolio Designs and Hedging;
    All these keywords.

    JEL classification:

    • F3 - International Economics - - International Finance
    • F15 - International Economics - - Trade - - - Economic Integration
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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